AUD/USD – RBA Rate Cut Reaction

The Reserve Bank of Australia cut its policy rate by 25bps in its latest round of decision making today, bringing the cash rate to a record low of 2.75%. RBA Governor Glenn Stevens cited a strong AUD and easing inflation when explaining the decision. According to the accompanying statement, Governor Stevens stated that the rate cut was to encourage sustainable growth in the economy, which is currently “below trend”. The board also noticed that employment figures are lagging the increase in labor force, resulting in slightly higher unemployment rate. Domestic consumption remains robust, while investment levels remain modest. These factors contributed to the decision to slash rates even though previous rate cuts are still working its way into the economy.

There are good things for consumers to be cheerful about after this round of rate cuts. In the past 2 years, banks were reluctant to pass on the lower rates to consumers, but consumers stand to enjoy the full benefits this time round. The National Australia Bank has cut its mortgage rate by 0.25% immediately after the announcement, while Bank of Queensland will be doing so from 24th May. While the rest of the Australian banks remain silent as of writing, tight competition will denote that other banks will be likely to do so soon enough, which is a good result for RBA who has expressed concerns that credit demand remain weak.

Hourly Chart

AUD/USD went down 60 pips after the announcement, breaking 1.022 significant support along the way. Price was already looking bearish earlier due to the failure to push above 1.025, setting the stage for a bearish breakout below 1.022. Stochastic readings were also pointing to a bearish setup with a bear cycle underway during early Asian trading hours. Current readings are still pointing lower with ample space for readings to go lower, suggesting that price may still find lower lows beyond current levels.

Daily Chart

Stochastic readings from the longer-term Daily Chart is similar to the ones of the short-term Hourly Chart. The Stoch line is continuously pointing lower, on the verge of breaking into the Oversold region. Overall, the tone is heavily bearish with a 3 Black Crow candlestick pattern forming with the 1st Crow the result of a rejection from current overhead Kumo. Current sell-off is simply an extension of the bearish sell-off from 1.058 (12th April high), and bears may be able to enjoy free reign until 1.012 is reached (4th Mar swing low).

Strangely, RBA’s overall tone from the statement did not seem to have change much from previous decisions. According to RBA, inflation remains on target (which is set between 2-3%). The only difference between previous statements and now was the fact that RBA “decided to use some of the scope” that was made available with current inflation levels. Other than that, overall outlook remain cautiously optimistic, which suggest that additional rate cuts in 2013 may not be as forthright, especially given the AUD/USD has weakened significantly compared to recent 1.06 highs.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze
centers on forex and macro-economic trends impacting the Asia Pacific region.

MarketPulse is a forex, commodities, and global indices analysis news site providing timely and accurate information on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.

OANDA (Canada) Corporation ULC accounts are available to anyone with a Canadian bank account. OANDA (Canada) Corporation ULC is regulated by the Investment Industry Regulatory Organization of Canada (IIROC), which includes IIROC's online advisor check database (IIROC AdvisorReport), and customer accounts are protected by the Canadian Investor Protection Fund within specified limits. A brochure describing the nature and limits of coverage is available upon request or at www.cipf.ca.

OANDA Europe Limited is a company registered in England number 7110087 limited by shares with its registered office at Tower 42, Floor 9a, 25 Old Broad St, London EC2N 1HQ and is authorised and regulated by the Financial Conduct Authority, No: 542574.

OANDA Asia Pacific Pte Ltd (Co. Reg. No 200704926K) holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore and is also licenced by the International Enterprise Singapore.

OANDA Australia Pty Ltd is regulated by the Australian Securities and Investments Commission ASIC (ABN 26 152 088 349, AFSL No. 412981) and provides and is the issuer of the products and/or services on this website. It's important for you to consider the current Financial Service Guide (FSG), Product Disclosure Statement ('PDS'), Account Terms and any other relevant OANDA documents before making any financial investment decisions. These documents can be found here.